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IRS Releases Guidance on Qualified Retirement Plan Distributions

The IRS released proposed regulations that nullify the rule regarding allocation of amounts distributed out of designated Roth accounts to multiple destinations. Under the current rule, a distribution from a designated Roth account in a direct rollover is treated as a separate distribution from any amount paid directly to the participant. The proposed regulations eliminate this rule for distributions made on or after January 1, 2015 (or on an earlier date chosen by the participant that is on or after September 18, 2014). The proposed regulations were issued concurrently with Notice 2014-54, which permits plan participants to allocate after-tax and pre-tax amounts among multiple destinations when the funds are simultaneously dispersed from a qualified retirement plan.  The proposed regulations can be found here.  A copy of IRS Notice 2014-54 is available here.

New Regulations Regarding Hybrid Defined Benefit Plans

Final regulations were issued relating to defined benefit plans that use a lump-sum based benefit formula, including cash balance plans, pension equity plans, and other hybrid retirement plans. The regulations provide guidance with respect to certain issues regarding minimum vesting standards and accrual requirements that were not addressed in the 2010 regulations and make certain changes to such requirements. Such changes include extending the relief provided to pension equity plans to include a benefit formula that is expressed as a current single-sum dollar amount equal to a percentage of the participant’s highest average compensation. A hybrid plan satisfies the prohibition on age discrimination only if the plan does not credit interest at a rate that is greater than a market rate of return. One notable change includes expanding the list of rates that satisfy this market rate of return requirement and allowing for the list of permitted rates to be… Continue Reading

Proposed Regulations Regarding Hybrid Defined Benefit Plans Offer Transition Relief

As discussed above, the final regulations provided additional guidance on the requirement that a hybrid defined benefit plan not provide for interest credits at an effective rate that is greater than a market rate of return. Proposed regulations were also issued that permit a hybrid defined benefit plan that does not currently satisfy this requirement to satisfy the requirement by changing the specific portions of interest crediting rates that are not consistent with the final regulations to permitted interest crediting rates without violating the anti-cutback rules under ERISA. Comments on the proposed regulations must be received by December 18, 2014, and a public hearing is scheduled for January 9, 2015.  The proposed regulations can be found here.

IRS Issues Guidance for Changes in Measurement Periods or Methods Applicable to an Employee

In Notice 2014-49, the IRS provided guidance for determining if an employee is a full-time employee for purposes of the Affordable Care Act in situations where the measurement period applicable to the employee changes. The change may occur because the employee transfers from a position in which one measurement period applies to a position in which a different measurement period applies within the same large employer. The Notice also provides guidance in the event of corporate transactions such as mergers and acquisitions in which the employers use different measurement periods. Treasury and the IRS anticipate issuing further guidance. Taxpayers may rely on the Notice until such guidance is issued, and in any case, through the end of calendar year 2016.  A copy of IRS Notice 2014-49 can be found here.

IRS Announces Additional Permitted Election Changes for Health Coverage

In Notice 2014-55, the IRS added two situations in which a cafeteria plan participant may elect to discontinue coverage under the employer’s group health plan (the “Employer Plan”) to obtain coverage on an exchange established under Section 1311 of the Affordable Care Act (the “Exchange”). In the first situation, the participant’s hours of service are reduced such that the participant is expected to work less than 30 hours per week, but will remain eligible for participation in the Employer Plan. In that case, the participant may terminate coverage in the Employer Plan so long as he obtains coverage on the Exchange starting no later than the first day of the second month following the month in which the Employer Plan coverage is terminated. In the second situation, a participant may terminate coverage in the Employer Plan to obtain coverage through the Exchange with no overlap or gaps in coverage.  A… Continue Reading

IRS Issues Adjusted Dollar Amount for PCORI Fee

The Internal Revenue Code imposes a fee to help fund the Patient-Centered Outcomes Research Institute (“PCORI”). The PCORI fee is calculated using the average number of lives covered under the policy or plan and the applicable annual dollar amount. The applicable dollar amount for plan years ending from October 1, 2013 through September 30, 2014 is $2. IRS Notice 2014-56 provides that the applicable dollar amount will increase to $2.08 for the next plan year (ending from October 1, 2014 through September 30, 2015).  A copy of IRS Notice 2014-56 can be found here.

IRS Releases Pension Smoothing Guidance for Single-Employer Pension Plans

The Highway and Transportation Funding Act of 2014 (“HATFA”) extended for five years the funding stabilization provisions for single-employer defined benefit pension plans that were included in MAP-21. The IRS recently released Notice 2014-53 providing guidance on the funding stabilization rules after the passage of HATFA. The Notice, among other things, provides that a plan sponsor may irrevocably elect to defer, until the first plan year beginning on or after January 1, 2014, the use of the HATFA rates, either for all purposes or solely for purposes of Internal Revenue Code (“Code”) Section 436 funding-based limits on benefits and benefit accruals. The deferral requires the plan sponsor to provide written notice to the plan’s enrolled actuary and plan administrator by the later of (i) the deadline for filing the plan’s 2013 Form 5500, including extensions, or (ii) December 31, 2014. However, an election to defer the plan’s use of the… Continue Reading

Court Holds that Benefit Denial Notices Must Include Time Limits for Judicial Review

In the case of Moyer v. Metropolitan Life Ins. Co., the U.S. Court of Appeals for the Sixth Circuit held that a notice of benefit denial under ERISA must include not only a statement of the claimant’s right to judicial review of the benefit denial, but also any associated time limits for filing a claim for judicial review. Moyer was a participant in an employer-sponsored long-term disability plan that was subject to ERISA (the “Plan”). MetLife was the designated claims fiduciary under the Plan. MetLife denied Moyer’s claim for benefits and his subsequent internal appeal of that denial. Nearly four years later, Moyer sued MetLife for the denied benefits under Section 502 of ERISA. The Plan document specified a three-year limitations period for filing such a lawsuit, but neither MetLife’s benefit denial notice to Moyer nor the Plan’s summary plan description (“SPD”) included any such limitations period. The district court… Continue Reading

IRS Releases Draft Instructions for ACA Reporting Forms

The Internal Revenue Service (the “IRS”) released draft instructions for the forms that employers will use to report certain information required by the Affordable Care Act (the “ACA”).  Draft instructions have been released for Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage), 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), 1095-B (Health Coverage), and 1094-B (Transmittal of Health Coverage Information Returns).  Large employers (i.e., those with at least 50 full-time employees or equivalents) will use Forms 1095-C and 1094-C, while small employers offering “minimum essential coverage” to their employees will use Forms 1095-B and 1094-B.  Draft versions of these forms were released by the IRS in July.  Although these ACA reporting forms will be required for the first time in early 2016 (to report information related to the 2015 calendar year), the instructions provide that employers may voluntarily report information pertaining to the 2014 calendar year in… Continue Reading

EEOC Sues Employer Over “Involuntary” Wellness Program

The U.S. Equal Employment Opportunity Commission (the “EEOC”) recently sued Orion Energy Systems, Inc. (“Orion”), a Wisconsin employer, for allegedly violating the Americans with Disabilities Act of 1990, as amended (the “ADA”), in connection with Orion’s employee wellness program. Under this program, participants received a 100 percent subsidy on their health plan premiums while non-participants were required to pay the full cost. The EEOC charged that the Orion wellness program was not voluntary, and thus violated the ADA, because (1) it imposed a financial penalty for non-participation and (2) the sole non-participant was terminated from employment shortly after declining to participate in the program. EEOC guidance states that a wellness program is “voluntary” provided that participation is not required and the employer does not “penalize” employees who do not participate. However, the EEOC has not issued formal guidance regarding whether or to what extent an employer may offer financial incentives… Continue Reading

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